A Multimillion-Dollar Markup on a Modigliani

Last New Year’s Eve, Dmitry Rybolovlev, a Russian billionaire, sat down to lunch at the Eden Rock resort in St. Bart’s. Mingling with the other wealthy guests, he struck up a conversation with Sandy Heller, the New York art dealer and adviser to many hedge fund managers.

Mr. Rybolovlev, who now lives in Monaco, is an avid art collector, so the conversation naturally turned to the soaring prices for high-end art. Mr. Heller casually mentioned a Modigliani painting that had been sold by one of his clients, Steve Cohen.

“Which Modigliani?” Mr. Rybolovlev asked, according to people with knowledge of the conversation. Mr. Heller said it was “Nu Couché au Coussin Bleu,” one of Modigliani’s most famous nudes. Mr. Rybolovlev asked about the sale price, and the next day, after checking with Mr. Cohen, Mr. Heller told him: $93 million.

Mr. Rybolovlev was taken aback by the answer, according to people with knowledge of the matter. Mr. Heller didn’t know it, but Mr. Rybolovlev was the buyer of the painting and had paid $118 million — meaning the price had been marked up by the dealers by more than $20 million. In early January, Mr. Rybolovlev responded by filing a complaint against Yves Bouvier, a Swiss businessman and his longtime art dealer, with the General Prosecutor’s Office of Monaco alleging document forgery and fraud. Not long after, in February, Mr. Bouvier was arrested in Monaco on charges of fraud and complicity in money laundering. He is free on bail.

Through his lawyer, Mr. Bouvier denied the charges, saying it was a simple business dispute between him and Mr. Rybolovlev, who owed him money. The prosecutor declined to comment.

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Mr. Rybolovlev has accused a Swiss art dealer of marking up Modigliani’s “Nu Couché au Coussin Bleu” by over $20 million.CreditRybolovlev Family Trusts

The case has fixated the European fine-art world, with its details of a free-spending oligarch and a Swiss dealer who oversees a vast network of art storage sites stretching from Singapore to Luxembourg. But it also has broader implications, offering a glimpse into the hefty markups in the private art market and prompting the latest effort by wealthy collectors for more disclosure. The dispute follows a case involving the German art consultant Helge Achenbach, who was recently sentenced to six years in prison for defrauding members of the wealthy Albrecht family through illegally inflated invoices.

“It’s a $60 billion market where you can’t find out real prices, real ownership or the actual buyers and sellers,” said Steve Thomas, the head of the art practice at Irell & Manella, who often represents wealthy collectors. “But as values have gone up, we have more lawsuits, and collectors are finding out what really goes on behind the scenes.”

More than a decade ago, Mr. Rybolovlev started buying masterpieces from Mr. Bouvier. Mr. Rybolovlev, who is 48 and worth an estimated $10 billion according to Bloomberg, controlled one of the world’s largest potash companies before selling his stake in 2010. He is known for his family’s lavish purchases — a private island in Greece, his daughter’s $88 million penthouse in Manhattan, a Monaco soccer team — as well as for a 2014 multibillion-dollar judgment in a divorce from his ex-wife, Elana.

Mr. Rybolovlev met Mr. Bouvier in 2003 or 2004. Mr. Bouvier had built a thriving business in storing art for wealthy collectors in so-called freeports — giant, secure, climate-controlled warehouses that hold vast troves of art, wine and other collectibles. Mr. Bouvier’s company, Natural Le Coultre, is a major tenant of the freeport in Geneva and the majority owner of freeports in Luxembourg and Singapore. Prized by wealthy collectors for their secrecy and tax benefits, freeports have proliferated in recent years. Dealers estimate they hold hundreds of billions of dollars in valuables.

With his knowledge of the ownership and location of major works of art, Mr. Bouvier also became a dealer. Over the last decade, Mr. Rybolovlev and two Cypriot trusts owned by Mr. Rybolovlev’s family bought 40 works from Mr. Bouvier. The works include pieces by Leonardo da Vinci, Toulouse-Lautrec, Rothko, Klimt and Magritte with a total value of $2 billion, according to executives with the Rybolovlev family trusts, who spoke on the condition of anonymity.

Mr. Bouvier and Mr. Rybolovlev became friends, according to the Monaco complaint. Mr. Bouvier attended Mr. Rybolovlev’s birthday parties in Hawaii, Monaco and the Bagatelle restaurant in New York.

“In connection with the acquisitions of the works of art, Mr. Bouvier enjoyed the absolute trust of the buyers and had sole responsibility to carry out the usual verifications, including concerning the price of each work,” according to the Rybolovlev family’s Monaco complaint.

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Mr. Rybolovlev’s family trusts also bought Leonardo da Vinci’s “Salvator Mundi" from the dealer.CreditRybolovlev Family Trusts

Mr. Bouvier’s lawyer, Luc Brossollet, says his client was not “friends” with Mr. Rybolovlev and that their social interactions were “part of what we do for our important clients.” Mr. Brossollet said Mr. Bouvier was never acting as an agent or broker for Mr. Rybolovlev, but as an independent seller. The distinction is at the heart of the case: If he was working as an agent or representative of the Rybolovlevs, he would have a greater legal responsibility than if he were an independent seller. In the complaint, which charges Mr. Bouvier with fraud, Mr. Rybolovlev claims Mr. Bouvier falsified sales documents to disguise the markup of the paintings. For each sale, Mr. Bouvier usually made two invoices for Mr. Rybolovlev — a sales price for the painting and a sales commission of 2 percent, according to the complaint.

But Mr. Rybolovlev charges that Mr. Bouvier also took a large cut of the sale price. In the case of the Modigliani bought in 2012, he says Mr. Bouvier “secretly deducted an amount of at least $18 million,” in addition to his commission of $2.36 million. (Mr. Cohen’s dealer on the transaction, Lionel Pissarro, also received a commission of $4 million, according to the complaint.)

The Rybolovlev family trusts bought Leonardo da Vinci’s “Salvator Mundi” through Mr. Bouvier for $127.5 million in 2013. Yet Mr. Rybolovlev discovered later through an article in The New York Times that the seller received $75 million to $80 million for the work, representing a markup of as much as $50 million, according to the complaint.

Mr. Bouvier was not informed of the complaint or the police investigation. In Monaco, individuals or companies can file criminal complaints, which are then passed to the police for investigation and possible later judicial action. Weeks after Mr. Rybolovlev filed the complaint, he invited Mr. Bouvier to meet him at his home office in Monaco to discuss a Rothko painting. It was a trap: When Mr. Bouvier arrived, he was arrested on the street by eight police officers and held until he met his bail of 10 million euros.

Mr. Rybolovlev’s lawyers, in their complaint, say he and the family chose to file the criminal complaint rather than confront Mr. Bouvier “for obvious reasons of discretion and efficiency.”

Mr. Bouvier’s lawyer says Mr. Rybolovlev filed the complaint to avoid payments totaling “tens of millions of dollars” for a Rothko painting that Mr. Rybolovlev’s family trust bought in 2014 for $140 million. The Rybolovlev family representatives say the deal called for payment to be over several scheduled installments, so there is no failure to pay.

Mr. Brossollet, the lawyer, says Mr. Rybolovlev is a sophisticated collector who calls himself an “art adviser” to the trusts that bought the paintings, and is therefore “fully informed of the art market.” Mr. Rybolovlev could have chosen not to buy the pieces if he thought they were too expensive, Mr. Brossollet said. “Mr. Bouvier’s margin,” he said, “is not relevant.”

Correction:May 3, 2015

An article on April 5 about hefty markups in the private art market misidentified the dealer in a transaction involving a Modigliani painting. The dealer was Lionel Pissarro, not his brother Joachim.

ROBERT FRANK is CNBC wealth editor and the author of “Richistan.”

A version of this article appears in print on , Section BU, Page 3 of the New York edition with the headline: A Multimillion-Dollar Markup on a Modigliani. Order Reprints | Today’s Paper | Subscribe